I have a problem. I'm a school teacher and I need determine the best vehicle to invest my retirement savings. I'm already fully funding a Roth IRA, and am eligible to save approx. $7000/yr pre-tax in a 403(b). The problem is that the 403(b) options available to me are not particularly compelling. The school district has no provisions for matching funds, and the S&P 500 index fund has an expense ratio of 1.35%, plus a $3.75 per quarter fee.

I'm considering not funding the 403(b), and instead using the $7000/yr to simply buy and hold individual stocks (INTC, PFE, MSFT, KO and the like) in a taxable account at Waterhouse. I already have my IRA money from a previous job in a self-directed IRA, and have very clear ideas about what I like to buy and what risk I can tolerate. I also like the idea of not having all the retirement account strings attached to the money.

What I have been unable to do is make a meaningful quantitative comparasion between the tax advantaged and non-tax advantaged scenarios. I guess what I'm asking is this: How do I determine by how much I would have to beat the 403 (b) index fund's return in order to make up for the lost tax advantages? Once I determined that, I could make an informed decision about whether or not to fund a 403 (b).

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